๐๐จ๐ฅ๐, ๐๐๐ฌ ๐๐จ๐ฅ๐ ๐๐๐ฌ ๐๐. ๐๐๐ก๐ซ๐ก๐ฎ๐ง๐๐๐ซ๐ญ๐ฌ?
Here you can find my contribution to the "GetQuin users publish analysis on assets they hate" challenge on gold ( https://app.getquin.com/activity/zUEyNebknv )
Gold. Everybody knows it. Whether physically or as an ETF / ETC. But before we answer the question in the title of this post, let's first see, ๐ฐ๐๐ซ๐ฎ๐ฆ ๐๐จ๐ฅ๐ รผ๐๐๐ซ๐ก๐๐ฎ๐ฉ๐ญ ๐๐ข๐ง๐๐ง ๐๐๐ซ๐ญ ๐ก๐๐ญ. For this, it brings some important features:
1) Gold cannot be reproduced at will and is in limited supply.
2) Gold is actually used and processed. For example, in the electrical industry or in jewelry.
3) The extraction and processing are associated with great expense, which must be compensated for by the selling price.
4) People believe in it
5) Gold can be physically stored and is recognized across borders.
Sometimes people try to invalidate the low availability of gold (1) by referring to the mining of gold in space. In my view, however, this is nonsense because, on the one hand, this is not quite so trivial from a purely technical point of view and, on the other hand, would be accompanied by even higher mining costs, which would tend to drive the price up (3).
The use of gold in the electrical industry or for the production of jewelry (2) ensures that there is a demand beyond pure monetary investment. Accordingly, gold "must" be mined. However, if this is not possible without covering the mining costs, no more will be mined, which tightens the supply and causes the price to rise - until gold mining becomes worthwhile again in purely economic terms (3). The effect is weakened by improved and cheaper mining possibilities and intensified by the reduction of easily minable gold deposits.
So we can see that gold - viewed purely rationally - has a value. In addition, there is the emotional component, which is much more important to me: Markets are not rational. Generations before and after us were and are being told that gold is a safe haven in times of crisis (4). Since such "unquestionable universal assumptions" are universal and unquestionable, gold is bought in times of crisis, causing demand and price to rise.
Independently of this, gold can actually generate a great value in crises (5). Namely, whenever war, natural disasters of gigantic proportions or political crises devalue the local or global currency and other asset classes such as companies (can no longer do their business) or real estate (have been destroyed). Gold is known and accepted worldwide and functions without central elements that ensure its value (e.g. central banks). In addition, physical gold is "offline capable." Even if any infrastructure is destroyed, gold can still be exchanged for commodities.
๐๐ข๐ ๐ฃ๐๐๐๐ฌ ๐๐ฌ๐ฌ๐๐ญ ๐๐ซ๐ข๐ง๐ ๐ญ ๐๐จ๐ฅ๐ ๐๐๐๐ซ ๐๐ฎ๐๐ก ๐๐ข๐ง ๐ฉ๐๐๐ซ ๐๐ข๐ ๐๐ง๐ฌ๐๐ก๐๐๐ญ๐๐ง ๐ฆ๐ข๐ญ, ๐๐ข๐ ๐ฌ๐ข๐๐ก ๐ง๐๐๐ก๐ญ๐๐ข๐ฅ๐ข๐ ๐๐ฎ๐ฌ๐ฐ๐ข๐ซ๐ค๐๐ง:
6) The authenticity of gold can only be verified by experts, who must be trusted accordingly.
7) The actual amount of gold available is unknown
8) Whether gold is really so useful in extreme crisis situations (nuclear war, meteorite impact, WW3, zombie apocalypse, ...) remains to be seen
8a) If the infrastructure collapses, it is questionable whether something can still be started with gold in the form of ETF / ETC or not.
8b) Physical gold, on the other hand, is difficult to transport and divide and thus rather unsuitable as a means of payment
8c) In any case, in an extreme crisis I would rather have weapons, ammunition and canned food than a gold bar in the cellar.
9) Theoretically, there is a possibility that a way will be found to replace gold in the future. Demand would go down. Gold is not a company that somehow makes a profit and would therefore justify a price increase.
For me, gold is primarily a crisis currency because people believe in it and not because the properties of gold are so outstandingly suitable for surviving any crisis. But that can also be reason enough for an investment ...
๐๐ก๐๐จ๐ซ๐๐ญ๐ข๐ฌ๐๐ก ๐ครถ๐ง๐ง๐ญ๐ ๐๐จ๐ฅ๐ ๐๐ฅ๐ฌ๐จ ๐ฐ๐๐ซ๐ญ๐ฏ๐จ๐ฅ๐ฅ๐๐ซ ๐ฐ๐๐ซ๐๐๐ง. ๐๐ข๐ ๐ฌ๐๐ก๐๐ฎ๐ญ ๐๐๐ฌ ๐ข๐ง ๐๐๐ซ ๐๐ซ๐๐ฑ๐ข๐ฌ ๐๐ฎ๐ฌ?
In fact, gold has been able to significantly beat the MSCI World Index over the last 20 years. Especially at the time of the financial crisis and afterwards, gold was able to capture lots of returns while the stock markets lost value. However, if you look at the last 40 years or the years before 2000, the MSCI World is more than clearly ahead [1]. Of course, these figures leave room for interpretation. Has gold grown too much in the last 20 years and is now mercilessly overvalued? Or has the growth in value over the past 40 years been too small, which is why gold is now at a reasonable level or continues to be severely undervalued? But before we answer this important question, let's take another look at the introductory question:
๐๐ฌ๐ญ ๐๐จ๐ฅ๐ ๐๐๐ฌ ๐๐จ๐ฅ๐ ๐๐๐ฌ ๐๐. ๐๐๐ก๐ซ๐ก๐ฎ๐ง๐๐๐ซ๐ญ๐ฌ?
No, it isn't. The gold we have seen so far in the 21st century has had nothing to do - at least in terms of performance - with the gold we knew in the 20th century. The price of gold has risen much more in the last 20 years than in the years before. This can be explained, for example, by the recency bias [2]. The recency bias means that we attach more importance to recent events, such as the strong increase in the value of gold, than to events that took place longer ago. That is, we see rising gold prices, want to profit from them and also buy gold, which leads to rising demand and thus to further rising prices. And this is where the regression to the mean [3] comes into play, which ensures that short-term price fluctuations adjust to average value developments in the long term. Thus, fat years are followed by lean years and vice versa.
Now, one could of course argue that the gold price has risen so strongly because the industry has changed significantly in the last 20 years and therefore there is more demand for gold in this sector. However, if you look at gold demand from different sectors [4], you will see that in 2020 about 55% of gold demand was for investment purposes and from central banks. Almost 40% will be demanded for jewelry, which has always existed, and only 8% will be for industry.
So should one invest in gold? If you can reliably forecast crises (do market timing), definitely. I can't. I therefore continue to give gold a wide berth. The price increase over the last 20 years has been well above average, so for the reasons I mentioned, I tend to believe that the price will underperform over the next 20 years. In addition, the long-term return opportunities are too low for me.
Sources
[2] https://www.investopedia.com/recency-availability-bias-5206686
[3] https://www.finanzfluss.de/etf-handbuch/risiken-reduzieren/
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